FM calls for one-year free look period to boost insurance policy reviews

Giving customers more time to review a policy will likely reduce complaints, say experts

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Finance Minister Nirmala Sitharaman has urged insurance companies to extend the so-called free look period from one month to a year, according to business news channel CNBC-TV18.

 

‘Free look’ is the time given to subscribers to review an insurance policy at inception and cancel it if they wish. For a health insurance policy, the term must be at least three years to avail of the option.

 

If implemented, extended free look will give policyholders more time to assess policies and obtain a full refund of premiums if they find the terms unsuitable. Last year, the insurance regulator increased the period to 30 days from 15 days.  "Extending the free look period is a crucial step toward making insurance more consumer-friendly. It gives policyholders extra time to thoroughly review their policy’s terms, benefits, and exclusions without feeling rushed. Insurance is a long-term commitment, and often, people realise after purchasing that the policy may not fully meet their needs. A longer free look period acts as a safety net, allowing them to cancel or switch without financial loss," said Pankaj Nawani, CEO of CarePal Secure.

 

Review period:

 

The insured is given a minimum of 15 days (or 30 days for electronic policies and those purchased through distance mode) from the date of receiving the policy to review its terms and conditions.

 

If the policy is not acceptable, the insured can return it within this period.

 

Refund eligibility

 

If no claims are made during a free look period, the insured is entitled to a refund, subject to certain deductions:

 

Full refund: Premium paid minus expenses incurred on medical examinations and stamp duty charges.

 

Risk-based deduction: If coverage has already commenced, the insurer may deduct a proportionate risk premium for the period covered.

 

Partial coverage deduction: If only part of the insurance coverage has started, a proportionate deduction will be made for the duration of coverage.

 

For unit-linked policies: In addition to the above deductions, the insurer can repurchase units at the prevailing market price on the date the policy is returned.

 

How to cancel a policy during the free-look period?

 

Policyholders must typically submit a written request containing details such as the policy document's receipt date, the reason for cancellation, and agent information.

 

Once the request is received, the insurance company may reach out to the policyholder to understand their concerns and explore possible alternatives.

 

According to experts, an extended period could also lead to fewer complaints regarding unsatisfactory policies, as consumers would have more opportunities to rectify any issues early on.